Frontken Corporation Berhad - Conclude stellar FY24
Wed, 26-Feb-2025 07:27 am
by Jayden Tan • Apex Research

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FRONTKN (0128)

Target Price (RM)

4.370

Recommendation

Buy

Summary

  • Frontken reported FY24 core net profit of RM136.8m (+22.2% yoy), in line with expectations at 98.5% of our RM139m forecast and 97% of consensus RM141m, driven by both strong semiconductor and O&G demand.

  • 4QFY24 CNP grew +28.2% yoy, +7.9% qoq to RM38.1m, supported by higher margins in Singapore (+25.4ppts yoy) from cost efficiencies. The Kulim plant's full recovery offset weaker Taiwan subsidiary performance (-4.2% qoq revenue, -6% qoq profit) due to forex impact and additional hiring. No change for fy25f and fy26f earnings forecast.

  • Maintain BUY but lower TP to RM4.37 (from RM5.38) after adjusting PER to 35x (from 43x) to reflect semiconductor sector headwinds and cautious market sentiment. 

 

Results within expectations. FY24 core net profit (CNP) of RM136.8m (+22.2% yoy) came in line with forecasts, reaching 98.5% of our RM139m estimate and 97% of the consensus forecast of RM141m.

 

YoY. 4QFY24 CNP rose 28.2% yoy to RM38.1m, boosted by stronger demand in both the semiconductor and O&G businesses. Performance was also supported by higher margins in the Singapore operation (+25.4 ppts), driven by improved cost efficiency from lower labour and material costs in 4Q. Quarterly revenue climbed 13.7% yoy to RM149.5m.

 

QoQ. CNP increased 7.9% qoq, aided by the recovery of the Kulim plant to full operation and stronger Singapore performance, which helped offset a slight drop in Taiwan’s subsidiary revenue (-4.2% qoq) and operating profit (-6% qoq). The Taiwan operation saw an unfavourable forex impact; using the same exchange rate as the previous quarter, revenue and operating profit would have grown by 7% and 1%, respectively. Meanwhile, Taiwan’s margin (-9.7 ppts qoq) was affected by additional hiring in anticipation of long-term demand. Revenue for the quarter grew 3.6% qoq.

 

Dividend. Declared a 2 sen/share dividend, payable on 21 Apr 2025, bringing the full-year FY24 dividend to 3.7 sen.

 

Outlook. We expect semiconductor segment demand to remain strong, but the near-term outlook is clouded by uncertainties from the Trump administration’s tariff policies, which could pose headwinds for global semiconductor investments. Meanwhile, we are encouraged by the O&G segment’s performance this quarter and expect it to stay resilient in FY25F amid rising industry activity.

 

Earnings Revision. We keep our forecasts for FY25F and FY26F unchanged.

 

Valuation. Maintain our BUY recommendation on Frontken but lower our target price to RM4.37 (previously RM5.38), reflecting a reduced PER of 35x (down from 43x)—the five-year mean forward PER—to account for weaker market sentiment and multiple headwinds in the semiconductor industry.

 

Risk. Forex fluctuations, particularly in Taiwan, could affect reported revenue. In addition, the lingering risk of Trump-era tariffs may undermine fab investment confidence.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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